How Cost-Effective is HR Outsourcing?

Companies widely use HR outsourcing to increase convenience and reduce the amount of time spent on mundane activities. However, it can offer increased cost savings beyond that. The savings depend on the type of HR outsourcing you use. Some solutions handle more responsibilities and are more cost-effective than others. 

However, the potential savings can be substantial. Here are three areas in which HR outsourcing can save you money, yielding higher productivity and increased profits. 

Save Money With HR Outsourcing 

The best way to save money with HR outsourcing is to partner with a PEO or professional employer organization. PEOs provide a comprehensive, end-to-end HR outsourcing solution that won’t interfere with running your company, allowing you to focus on running your business. They use co-employment to make the PEO the employer of record, so you and your employees gain access to their lower cost master benefits plan, which saves money. 

Partnering with a PEO saves you money by reducing the cost of benefits through economies of scale. It also saves money indirectly by significantly reducing compliance risks that can come from even minor errors. When a PEO does your payroll, they will be using enterprise-grade software and personnel trained to do the job quickly and accurately.  

A typical small business spends over $83,000 on compliance issues in the first year, which is often made worse by untrained people manually conducting HR duties. For companies with remote employees in multiple states, regulations can become even more complicated as you need to track different labor laws and ensure you pay overtime when required. National laws will still apply, but companies will additionally need to understand and comply with state and specific municipality regulations, mandates, and prohibitions including: 

• Minimum wage 
• Overtime payments 
• Notice posting requirements 
• Paying out of final paychecks 

• Sick day and PTO requirements 

PEOs are more cost-effective and have a higher ROI than other outsourcing solutions.

HR outsourcing also lets you delay adding another full-time HR employee. While outsourcing should not replace your in-house team, bringing on a full-time or even part-time person before you have enough work to justify it is not cost-effective, and neither is handing the extra work over to non-HR personnel. 

Higher Employee Retention 

An indirect benefit of adding your employees to a PEO's master benefits plan is that those benefits are almost always better than what you can afford independently. 

Providing competitive benefits increases employee loyalty substantially. You’ll have access to better options for your employees and their families and it often makes them feel more appreciated. You save on the high cost of onboarding new employees and preserve the institutional memory that comes with long-term, talented employees. You can then attract talent who will be a better institutional fit, which makes them more likely to stay around. 

It means that your employees don't have to leave to seek a company with better benefits after a life change such as marriage or pregnancy, an issue many small businesses that can only afford individual health plans face. Because your employees have better access to preventive healthcare, you reduce the risk of losing a valued employee to either their long-term illness or their spouse's illness. Offering a retirement plan also increases retention by providing a tangible benefit for loyalty. 

All of this makes it harder, too, for your competition to intentionally poach your top people. Many people may appear to be happy in their jobs but are still open to a better offer. Ideally, you want to be the better offer rather than losing out to one, which can be a true challenge for small businesses. 

Partnering with a PEO also gives you access to their expertise and their experience from working with multiple companies. They can often advise on programs to increase retention, such as employee development and wellness programs. 

Increased Employee Engagement 

Employee engagement is intangible and hard to measure, but it is still vital. A crucial role of human resources is to support and engage their employees to keep them satisfied and reassured. 

When HR isn’t spending hours of their time doing payroll and benefits administration, they are free to engage in activities designed to support employees (and manage strategic growth). It creates a better work environment and a stronger company culture, which, in turn, increases productivity and profitability. It also ensures that non-HR personnel, including the owner, are not caught up in mundane paperwork unrelated to their jobs. 

It isn’t good for morale if people engage in tedious activities outside their training. Keeping everyone on task helps keep employee engagement high. Overall, partnering with a PEO gives you more time to work on intangible issues such as employee engagement and company culture, which can eventually become self-sustaining as your company stabilizes and grows. 

HR outsourcing is cost-effective as a direct result of the cost and time savings provided. However, the best way to maximize those cost savings is to partner with a PEO so that you have access to their improved benefits packages. They will also free your HR staff to do the more complicated and vital parts of their job instead of spending endless hours processing payroll and answering benefits questions. 

Partnering with a PEO is the best HR outsourcing solution for small to medium-sized businesses, saving time and money and providing access to benefits and expertise you would not otherwise be able to afford.